Archives For Real Estate

There has been a growing trend for sometime now that is pushing business owners out of their own real estate space. The trend of co-working environments is when companies utilize space along side of other companies within relatively the same suite, same address, same common space, office equipment etc. Experts predict this business trend will reach 21,306 facilities worldwide by the end of 2019. This concept may not be foreign to you but many visitors to Drive Planning still view it with a healthy curiosity.

James & Katie

Of course the curiosity ranges in degrees of understanding and interest. Most suggest they’ve heard about this and comment about the energy and cool atmosphere that it exudes. Many business owners or anyone with an entrepreneurial flare starts doing the math; Is this a good deal?…..is it right for them? You can see their wheels begin to turn.

The upside for a growing company is the flexibility to increase your Real Estate only as you increase Human Capital. For those who track with us routinely you recognize these as two of the four key elements to business as noted in The Big Four of Business. The ease and flexibility are undeniable. You’re never purchasing dead space while you are waiting to grow.

At Drive Planning, we certainly enjoy the productivity that comes from allowing our team to work close to home. Eliminating, or at least minimizing, extreme travel time for our team members and those clients visiting our office is certainly a strategic advantage. We are able to market locations in multiple areas thus allowing us to recruit new/local Consultants or new/local clients/Members.

This brings us to a critical piece of any organization, particularly startups! The ethos of an organization is discussed more today than ever, or at least more so than anytime I recall in my twenty four year career. Is it due to the millennials who get blamed for most things:) Could this conversation be the sole result of the Google’s, Facebooks and Apple type corporations famed offices. Likely a mixture of both.

The trends of open space, in office games, drinks and youthful energy are real and I love them! However, if you’re a start up business it would certainly be hard to justify a Ping Pong Table or a bar for your new office. This new style of office affords you that luxury/perk. So, I am fully into developing that edgy ethos and culture, creating that vibe; every company has one whether bad or good.

This is where the dark side of co-working space comes into play. Its when you’re creating that vibe or ethos that you desire but do not have full control. What happens when your company ends up in a location that doesn’t share your same energy.  It isn’t always that you have chosen poorly. Like I stated earlier, there are certainly lots of choices out there, more so than ever before. I have seen environments and cultures radically change due to a change within the hosts or community staff that manages the co-working space.

As a disclaimer we have only ran into this situation a couple of times over the years. Many of the community managers have appeared on our website, participated in our company outings and remain friends today. Some have not.

The staff or leaders of each community have a great impact on the success and feel of each location. The Co-Working Community Team become extensions of your office and company. They often times interact with your guests, answer telephone calls and sometimes have more impact administratively. These individuals aren’t staff that you have carefully chosen or vetted through your on-boarding process. You would have never discussed their level of pay, career goals, family dynamics, timelines or any other personal matters that impact employment, yet you are stuck with them for better or worse.

It can be frustrating to have staff members that you didn’t hire and you can’t fire!

                                                           – Todd Burkhalter

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Whats the answer, unfortunately I do not have a proper end all solution. I merely have a band-aid and some potential preventative solutions.

When choosing a Co-Working Company:

  • Consider one with multiple locations – This will allow you to shift little more easily day to day meetings but even if you were to experience a staff member that wasn’t a good fit.
  • Ask a lot of questions – Determine how frequently they automatically change staff members to different locations. This isn’t fool proof but you can determine if there will automatically be a revolving door as opposed to the individual deciding to change positions.
  • Consider Community Events – How frequently will your location be hosting community events? What type of events will be held? Ask for a list of past events. Make sure that these will not be a constant disruption and fit within themes consistent with your values and corporate dynamics.
  • Consider The Networking – Ask for a list of companies that exist in the space. We have found these people will become friends, resources, potential business or clients.
  • The Dark Side – One last comment regarding that staff member that just ruins your day. Work to minimize your interaction through being able to transition locations but also consider hiring your own staff person that creates a majority of the customer reception or engagement.

Though there may be some downside risk; I believe that the Co-Working or Flexible Space Model has so many positives that it out-weighs the potential Dark Side which can be cast by a Staff person who likely will not be there very long. Let’s face it when someone has a poor attitude they aren’t likely to be around long term anyways.

Thanks for following along with The Life You Can Afford to Live! Keep up with me by connecting on-line through facebook, twitter or LinkedIn.

Paying Off Your House

January 8, 2019 — Leave a comment

Paying Off Your Home

 

Paying off your home is a choice about security but also a financial decision as well. There are numerous factors to consider like interest rates, length of the mortgage, down payment amount but less obvious considerations like tax deductions, opportunity cost and control also play a factor in this decision process.

Our process at Drive Planning certainly addresses these questions for you and your personal situation. However, some of the conventional wisdom you thought to be true may not be as accurate as you think. So, if what you believed to be true wasn’t when would you want to know?

This short video addresses the mortgage choices of three couples. We would love to hear your feedback here or through any of our social media channels at Facebook or twitter.

Click Here For The Mortgage Video!

The recent increases in the real estate market has sent more and more first time real estate investors to Drive Planning. One of the common questions that we receive is centered around purchasing real estate (either to flip or rental/buy and hold) inside of a Qualified Retirement Plan, such as an Individual Retirement Account (IRA) or other types of plans.

This is most common for those who do not have funds which are outside of their Retirement Plan. So, a better question is, Where else can I get funding for my real estate deal? There are numerous sources for funds if you know where to look, regardless of credit!

Real Estate - Retirement Plan

Let’s Take a Look at The Problem

For the remainder of this blog I want to focus on why purchasing real estate inside of an IRA is a poor idea.

An IRA is a tax shelter. Tax on the income is either deferred (Traditional IRA) or eliminated entirely (Roth IRA).

Rental real estate is an example of a type of real estate investment that can be a tax shelter on its own. Rental real estate often generates losses for tax purposes even when there is positive cash flow. This is because of the depreciation deduction that can be taken on the investment.

With proper tax and accounting, rental losses can be used to offset other income which effectively shelters that other income from income tax. This can result in significant tax savings.

If an IRA has rental losses, the IRA is generally not paying tax so there is no tax to shelter.

If an individual has rental losses, there is an opportunity to shelter other income, including W-2 or business income, from income tax. This results in not paying tax on that other income and those tax savings mean cash in your pocket.

Lastly, in retirement any proceeds from real estate inside of an IRA (Traditional) comes out as ordinary income!

In addition, these problems also come along with Real Estate purchased within an IRA/Qualified Plan:

  • Lose 1031 Tax Free Exchanges
  • Lose “Step Up in Basis” at Death
  • No Capital Gains Tax Rates
  • Potential Increase in Tax Rates
  • Lose enjoyment/use of funds prior to age 59 1/2 (Proposed/Potentially to be age 70 1/2 in the future)

The Bottom Line

Our team at Drive Planning has over 250 years of experience with situations like we’ve described above; therefore we believe that the tax savings are too significant so the property should be purchased outside of a qualified plan. Let us help you to find the money.

We would love to assist you with any financial decision and making sure that you are coordinating it into your overall financial plan.

Tax planning and advice should be reviewed by your personal tax advisor. The staff at Drive Tax and Accounting and Tom Wheelwright, CPA contributed to this article.